German GDP Rises In Q2: ETFs In Focus

German GDP increased 0.6% in the second quarter of 2017. Although it missed the 0.7% expected by economists in a Bloomberg survey, the Federal Statistics Office revised first-quarter GDP to 0.7%. It grew 2.1% year over year in the second quarter.

The primary driver of the GDP growth was domestic demand, owing to an increase in household and government consumption. However, imports increased at a faster pace than exports, which had a negative impact on GDP growth.

This report comes just weeks before the new Chancellor is elected. Germany goes to polls in September to choose its next Chancellor, which has already created political uncertainty in the region. However, people are confident because polls show Angela Merkel securing a comfortable victory in the elections. GfK Consumer confidence in Germany increased to 10.8 in August compared with 10.6 in July and above expectations of 10.6 (read: German Factory Orders Rise: ETFs to Buy).

German Industrial Output, adjusted for inflation and seasonal swings, fell 1.1% in June 2017 against a 1.2% rise in May and expectations of a 0.2% gain. This is the first time the measure has declined since December 2016. However, it increased 1.8% in the second quarter on a sequential basis.

Moreover, the labor market is strong. Per Federal Labor Agency, the number of jobless dropped by a seasonally adjusted 9,000 in July to 2.537 million. A Bloomberg survey had estimated a drop of 5,000.

Let us now discuss a few ETFs that are primarily focused on providing exposure to German equities (see all European Equity ETFs here).

iShares Currency Hedged MSCI Germany ETF HEWG

This fund is an appropriate bet for those looking to gain exposure to Germany without betting on the euro and is the hedged version of EWG. We believe it is best to remain hedged to the currency till political uncertainty in the region is dealt with.

HEWG has AUM of $814.31 million and charges 53 basis points in fees per year. Consumer Discretionary, Financials and Materials are the top three sectors of this fund, with 18.12%, 15.66% and 13.95% allocation, respectively (as of August 15, 2017). The top three holdings of EWG are Bayer AG (DE:BAYGN), SAP and Siemens AG (DE:SIEGn) with 7.81%, 7.80% and 7.42% exposure, respectively (as of August 15, 2017). HEWG has returned 3.93% year to date and 13% in the last one year (as of August 16, 2017). As such, HEWG currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

WisdomTree Germany Hedged Equity Fund DXGE

This fund seeks to provide exposure to German equities without betting on the euro.

DXGE has AUM of $118.46 million and charges 48 basis points in fees per year. Consumer Discretionary, Industrials and Financials are the top three sectors of this fund, with 23.50%, 18.23% and 17.16% allocation, respectively (as of August 16, 2017). From an individual holdings perspective, Allianz (DE:ALVG) SE, Bayerische Motoren Werke AG and BASF SE (DE:BASFN) are the top three holdings of the fund, with 6.72%, 5.62% and 5.55% allocation, respectively (as of August 16, 2017). It has returned 5.09% year to date and 14.94% in the last one year (as of August 16, 2017). As such, DXGE currently has a Zacks ETF Rank #2 with a Medium risk outlook.

Deutsche X-trackers MSCI Germany Hedged Equity ETF DBGR

This fund seeks to provide exposure to German equities while hedging away currency risk.

DBGR has AUM of $53.27 million and charges 45 basis points in fees per year. Consumer Discretionary, Financials and Basic Materials are the top three sectors of this fund, with 18%, 15% and 14% allocation, respectively. From an individual holdings perspective, Bayer AG, SAP SE (DE:SAPG) and Siemens AG are the top three holdings of the fund, with 7.66%, 7.64% and 7.28% allocation, respectively (as of August 15, 2017). It has returned 4.74% year to date and 13.93% in the last one year (as of August 16, 2017). As such, DBGR currently has a Zacks ETF Rank #2 with a Medium risk outlook.

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